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Freeserve applicants to face share shortage

by Jan Howells, VNU Newswire

Freeserve applicants look set to face a shortage of shares as the scramble to invest in Internet stocks in the UK kicks in.

It is possible that applications for shares in the free Internet service provider could be scaled back as much as two thirds as large institutions also grab their cut of UK cyberspace.

The deadline for applications is 1pm tomorrow and already brokers are predicting a shortage.

“The market is definitely telling us there will be a shortage,” Miles Saltiel, a broker for Panmure Gordon told VNU Newswire.

Although Freeserve users were given priority applications, the prospectus makes it very clear that if the stock issue is oversubscribed the Internet service provider and its brokers Casenove and Credit Suisse First Boston can make the final decision on share allocations.

Around 114,000 Freeserve users have registered for share options. Freeserve were unavailable for comment on how the shares will be allocated.

Dixons is selling 19 per cent or 153 million shares in Freeserve. They will be priced between 130p and 150p.

“Initially we are expecting a premium, but expectations are being scaled back based on the grey market,” said Saltiel. “After the initial market you are likely to see a decline in valuation levels.”

The price on the so called grey market has dropped from 205p to 184p.

The Freeserve offering is one of the first opportunities institutions have had at getting into the UK Internet market.

“It is their first real chance of exposure to the Net, but you must not forget that there are other alternatives coming later in the year,” said Saltiel.

Amongst them is financial services company The eXchange, which plans to offer 81.7 million shares, or about 40 per cent of the company, at between 170p and 207p per share in an issue underwritten by Warburg Dillon Read and Goldman Sachs. The flotation is slated for next month.